This year the stabilization of the dynamics of GDP and some increase in business activity in the industrial sphere happen on the background of the ongoing decline in investment to capital assets. In January- August 1997 RUR 205.5 trln. of investment capital were spent on the development of the economy and social sphere, which is at 8.2% less when compared with its respective period of the preceding year. The share of investment in capital assets dropped from 13.8% of GDP between January- August 1996 to 12.2% of GDP for the respective period of 1997.

The change in proportions of the distribution of investment by the national economy’s spheres became characteristic of 1997. Between January- August 1997 RUR 128.2 trln. were spent on the extension, reconstruction and technical rearmament of production objects. This is accounted for 62% of the overall volume of investment against 58% observed in 1996.

The rise in share of investment to production construction is not at all the index of change in investment attractiveness of this sphere of business- it is related to the intensification of the crisis in the public and social construction and, first of all, in house building.

Between January- August 1997 the investment in the construction of social objects reduced by 17.2% when compared with the same period of the preceding year, while the placement of houses into operation dropped by 14.2% and made up 131 mln. square m. against 15.2 mln. square m. reported over the period between January- August 1996.

The dynamics of house building has found itself under the negative impact of the population’s s narrowing solvent demand. With their current level of income and savings, the major part of potential consumers is incapable of resolving the problem of improving their housing conditions.

The ongoing arrears crisis has affected the construction companies’ activity. Between January- July 1997 the construction firms’ profit made up 71.5% of the last year’s level. The number of unprofitable construction companies grows. The amount of the construction firms’ losses is accounted for RUR 2.6 trln., and it grew by 32.7% when compared to the respective period of the last year.

The financial situation of construction companies is complicated because of the systematic growth in their customers’ debts. As of 01 June, 1997, the amount of credit liability in construction made up RUR 95.7 trln and exceeded the volume of debit liability at 21.9%. Since the beginning of this year.

As of 1 August, 1997, the debtor liability of the construction firms made up RUR 84.4 trln., including the overdue liability amounted to RUR 43.1 trln. The construction firms’ financial position is complicated because of the systematic growth in their customers’ liability. The share of the overdue liability in terms of government orders and Federal programs in the overall volume of the overdue debtor liability made up 7.6% and dropped by 2.2 points when compared to the last year. It is notable that, given that in the first quarter of 1997 the average monthly increment in the overdue liability on the government order and Federal programs was 5.9%, in the second quarter the volume of the said liability was reducing by 11.0% on average.

As of 1 September, 1997, the credit liability in the field of construction made up RUR 103.0 trln. and exceeded the debtor liability at 21.9%.

In the first half of 1997, the actual costs per 1 RUR of contracting work made up 94 kopecks against 90 kopecks in the first half of 1996. The rise in the share of material costs, given that the norms of the costs per 1 RUR of construction and assembling work is very high, was intensified with the trend to the advancing price rise for construction materials. The increment in prices for construction and assembling work made up 5.0% comparing to the beginning of this year, and the respective index in terms of the products of the industry of construction materials is accounted for 6.3%. In the structure of costs there is the growth in the share of costs related to the conservation of the incomplete objects and maintenance of operational characteristics of completed objects, as well as of expenses related to paying off credits.

Table 4

The structure of costs

in the construction industry ( in the Ist half year, in % to the result)

1996

1997

Costs total:

100,0

100,0

including:

raw materials and other materials

50,3

52,1

salaries and wages

23,2

23,7

deductions for social needs

8,8

8,9

amortisation

5,5

5,1

other costs

12,2

10,3,0

Source: Goskomstt of RF

O. Izryadnova

Foreign trade

Between January - August 1997 the trend to the reduction in the he Russian foreign trade’s volume. The Russian foreign trade turnover made up USD 95.7 bln., which is at 2.7% down, when compared with its respective period of 1996, including decrease in export supplies at 2.6% ( USD 55.0 bln.) and fall in import supplies at 2.9% ( USD 40.7 bln.)

Such a drop may be attributed to the deterioration of the situation in the international market by major goods of the Russian export and approaching the end values of export quotas in the majority of the raw material branches, low competitiveness of Russian products. Among the major reasons for the fall in import supplies, one may single out the following: saturation ( relative to the narrowing solvent demand) of the domestic market with consumer goods, primarily with the goods of long consumption, low investment activity in this country, and intensification of both tariff and non- tariff regulation of import, mostly aimed for the protection of domestic producers.

The share of the Far Abroad states in the Russian foreign trade turnover grew up to 77% against 75.4% observed between January- July 1996. The export to the said countries made up USD 43.8 bln., which is at 2.8% down when compared to the respective period of 1996, while import grew by 2.7% and made up USD 30.0 bln.

Figure 10

As to the Russia’s trade with the C.I.S. states, there are the trends similar for all these countries- reduction in the volume of mutual trade comparing to the last year’s results. Thus, in the first half of 1997 Russia exported about 20% of the total volume of its export to the neighboring states, while Ukraine 40%, Armenia- 34%.

In the first half of 1997, only three countries, namely, Russia, Kazakhstan and Azerbaidzhan had a positive trade balance: USD 18.4, 1.2 and 30 bln., respectively. The negative balance of foreign trade of the Commonwealth’s other members characterizes unfavorable conditions in the field of mutual trade.

Sergei Prikhodko

Situation in agroindustrial complex

As of 15 September, 3/4 of the grain areas were harvested, and the remaining areas are located mostly in the eastern part of Russia. This year the yield per hectare is significantly higher when compared with the last two years, when it was extremely low. However, the yield rate is still rather low ( Figure 11). The rise in yield per hectare rate may be attributed mostly to the weather factor, however, one cannot help but note the rise in application of mineral fertilizers and agricultural chemicals in the agrarian production

(although such a rise was rather insignificant), but it happened for the first time since the beginning of the reforms).

Despite the common opinion concerning the critical condition in the field of supplies of agricultural machinery and fuel and lubricants to the agricultural enterprises, the rate of the autumn field work is significantly superior to the rate observed during the preceding years (Figure 12). This may testify to the fact that the official statistical data on the real situation with the sufficiency in terms of material and technical supplies to the agricultural enterprises were lowered, or this fact shows some optimization in utilizing the resources in the agrarian sector.

The output of feeds in this country continues to reduce. However, the rate of this reduction is slower comparing to the reduction in the number of live- stock. As a result, the situation with feeds is improving (Figure 13). In this connection, the question of the trustworthiness of the data on the live-stock’s productivity arises, since, given that there is the growing sufficiency in terms of feeds, the decreasing productivity is beyond any explanation. It is most likely that the high indebtedness and “kartoteca*” of the agricultural enterprises are the incentives for hiding a part of the cattle- breeding production ( especially milk), for selling it for cash.

The current crucial problem of agriculure is the unbearably high overdue credit liability. As of today, the overall overdue credit liability of agricultural enterprises, including the liability resulted from issued credits and loans reached almost RUR 60 trln. Over one- third of the said amount is debts to budgets and payments to extrabudgetary funds. The significant part of these debts is fines for delays with the respective payments. The excess of the overdue credit liability over the overdue debtor liability makes up over 500% to the overdue debtor liability, while by the economy as a whole the respective index is 60%, and slightly over 70% in industry. According to the data of the Ministry of Agriculture and Food Products of RF, about 8-% of enterprises bear losses according to their financial statements.

In such conditions, a normal financing of the branch is impossible. Banking credits turn into goods credits, sales of products are performed through barter channels or for cash, monetary revenues arrive to the accounts of the specifically established daughter enterprises, or the agricultural enterprises find more exotic ways to avoid their accounts overburdened with «kartoteca»: in some cases a few enterprises agreed to keep the bank account of one of them active, to perform their transactions and settlements through it. The barter operations hampers the agrarian market’s development: the barter transactions are not transparent, prices by them are vague, information is not distributed among the agents in the market. As a result, the domestic prices, regardless of the lack of the explicit government policy of restricting prices, remain lower than international ones. The agricultural enterprises with «kartoteca» do not have an access to banking credit.

Thus, the accumulated credit liability of the agricultural enterprises distorts the whole system of the agrarian sector’s functioning, a significant part of the turnover goes to the ‘gray» market, and market proportions are also distorted. The barter’s spreading over the agricultural market results in decreasing agricultural prices and, consequently, in the deterioration of the agricultural producers’ financial position.

In such conditions the government once again discusses the problem of restructuring the agricultural producers’ debt. However, the current situation radically changes from the situation observed in 1994, when for the first time since the beginning of the reforms the large- scale writing -off and restructuring of debts in the agrarian sector were made. At that time the state was still the major issuer of credits to agriculture. Although at that time the government used the Agroprombank’s channels to forward the loans directly to the enterprises, nevertheless, the bank’s function was merely technical. The distribution of the financial resources was subject to a government official’s decision, i.e. it was laying beyond the economic sphere. It meant that already the next year any producer could claim for a guaranteed issue of a credit. As a result, the writing- off and restructuring of debts has only encouraged the weakening of the financial discipline in the sector. It was credible and strong enterprises who lost in such a game, since they had paid off their debts before the decision concerning the said restructuring was taken.